State funding to localities lags behind inflation rate

ALBANY – New York State’s payments to localities – much of it for mandated health, welfare and other services – has grown by less than half the inflation rate during the last decade, the state’s chief fiscal watchdog said Wednesday.

State Comptroller Thomas P. DiNapoli said the slow pace of state, as well as federal, funding to localities has forced them to rely more heavily on local sales taxes and higher property taxes to bring in revenues.

The report comes as a growing number of local governments are facing mounting fiscal pressures.

The comptroller said state payments to local governments grew by $412 million from 2001 to 2011, which is about 1.2 percent annually or less than half the 2.4 percent rate of inflation.

Most of the growth in revenues went primarily to cities through the Aid and Incentives for Municipalities program. He noted, though, that the AIM program has seen reduced or flat funding since 2009, with projections to remain flat through 2016.

But revenues that localities have raised through property taxes during the 10-year period have risen by 4.2 percent on an average annual basis, and sales taxes have grown 5.9 percent annually.

When state and federal aid is included, the growth in payments has increased by an average of 2.2 percent annually, still below the inflation rate.

The federal number is skewed, DiNapoli said, by the one-shot, temporary bailout in the 2009 American Reinvestment and Recovery Act.

“Federal and state aid have slowed at a time of rising local costs,” DiNapoli warned. “What’s more troublesome, however, is that New York’s municipalities and school districts have been forced to rely largely on sales taxes and property taxes to make ends meet.

These revenue sources can swing widely, depending on the economy. When this model breaks down, it causes financial shortfalls and hits the pockets of local taxpayers.”

The comptroller said that 65 percent of state payments to localities are for reimbursements for payments the local governments have made or services for an assortment of social and health care services.

DiNapoli’s office has created a “fiscal monitoring system” to make public the financial pressures for every local unit of government across the state.

The comptroller’s fiscal warnings about state and federal aid levels for localities should be a wake-up call for counties, school districts and municipalities to include long-term fiscal planning as part of their annual budget process, said E.J. McMahon, senior fellow at the Empire Center for New York State Policy.

The group issued its own report Wednesday, noting that most localities in the state do not craft their annual fiscal plans looking more than a year ahead, and said long-term revenue and spending forecasts should be embraced now more than ever.

The group called for localities to plan their spending and revenue estimates for four years into the future, and said there are plenty of sources, including guidelines by the State Comptroller’s Office, to help with the forecasting.

The report found that only five of the state’s largest local governments issue budgets with forecasts for future revenues and spending more than a year into the future.

One of those exceptions is the City of Buffalo, which began four-year planning in 2003 when its finances were overseen by a state-appointed control board.

“While Buffalo is by no means free of fiscal pressures, it is in far better shape than it was earlier in the decade. And in contrast to other fiscally troubled cities, Buffalo has clearly defined future challenges in dollars-and-cents terms,” the conservative think tank said in its report.

The New York State Association of Counties said DiNapoli’s warnings of state and local aid to localities comes as the state also has been increasing the number of mandates that it imposes on counties for various services.

“In nearly every major category of spending, counties are receiving less reimbursement than they did five years ago, while costs and caseloads have risen. New York’s county governments cannot continue to carry the state’s obligations at the local government level,” said Stephen J. Acquario, executive director of the association.

The group used the DiNapoli report to urge Gov. Andrew M. Cuomo and lawmakers to enact meaningful mandate relief in 2013 to help localities deal with slowing state and federal aid payments and the state’s new property tax cap.